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The Relationship Between Delegation and Incentives Across Occupations: Evidence and Theory

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  • DeVaro, Jed
  • Prasad, Suraj

Abstract

A large literature, both theoretical and empirical, suggests that delegation of authority and incentives should have a positive relationship. Using data from a large cross section of British establishments, we show that the positive relationship between incentives and delegation that has been consistently documented in the empirical literature masks a stark difference between job types. We classify jobs into two categories: complex jobs include professional, technical and scientific occupations and simple jobs consist of all other occupations with a lower-level code in the Standard Occupational Classification (SOC) system. We find that for simple jobs, the relationship between delegation and incentives is positive as has been found in the previous literature, whereas for complex jobs it is negative. To explain this negative relationship for complex jobs, we develop a model where tasks have a risk-return tradeoff and where a single performance measure has to induce both task selection and effort. We find that if tasks vary sufficiently by risk and return and if effort is noisy to measure, then delegation and incentives have a negative relationship.

Suggested Citation

  • DeVaro, Jed & Prasad, Suraj, 2013. "The Relationship Between Delegation and Incentives Across Occupations: Evidence and Theory," Working Papers 2013-05, University of Sydney, School of Economics.
  • Handle: RePEc:syd:wpaper:2123/9015
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    19. Jed Devaro & Fidan Ana Kurtulus, 2010. "An Empirical Analysis of Risk, Incentives and the Delegation of Worker Authority," ILR Review, Cornell University, ILR School, vol. 63(4), pages 641-661, July.
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    Cited by:

    1. Schöttner, Anja & Rohlfing-Bastian, Anna, 2015. "Optimal Allocation of Decision-Making Authority and the Provision of Incentives under Uncertainty," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113200, Verein für Socialpolitik / German Economic Association.
    2. repec:spr:jlabre:v:38:y:2017:i:4:d:10.1007_s12122-017-9259-2 is not listed on IDEAS
    3. Christos Bilanakos & John S. Heywood & John Sessions & Nikolaos Theodoropoulos, 2016. "Delegation and worker training," University of Cyprus Working Papers in Economics 06-2016, University of Cyprus Department of Economics.
    4. Jed DeVaro & Antti Kauhanen, 2016. "An “Opposing Responses” Test of Classic versus Market-Based Promotion Tournaments," Journal of Labor Economics, University of Chicago Press, vol. 34(3), pages 747-779.
    5. Marco Faillo & Costanza Piovanelli, 2017. "Wage delegation and intrinsic motivation: an experimental study," CEEL Working Papers 1701, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.

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